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China raises initial 2015 oil product export quotas
by 20 per cent.

China to hike oil product exports, add to glut

BEIJING, February 18, 2015

Beijing has raised the initial volume of oil products that Chinese refiners can export this year, potentially adding to a supply glut just as new processing capacity in the Middle East is expected to pressure fuel prices and depress margins.

China controls oil product exports through quotas to state-run refiners after assessing domestic needs. This year Sinopec Corp, CNOOC Ltd and PetroChina were given an oil product export quota of 9.75 million tonnes, up about 20 percent from the initial limit set for 2014, industry sources with knowledge of the matter said.

The refiners will likely apply for more allowances once they exhaust the initial quotas as they run cheaper crude through the capacity added last year, and the final annual exports are expected to far exceed the opening levels.

The first quota limit given to oil refiners in 2014 was for about 8 million tonnes, but by the end of the year China had exported 19.6 million tonnes of gasoline, jet fuel, diesel and naphtha, according to customs data.

"With supply running ahead of domestic products consumption, increased exports from China is expected to exert some pressure on the regional cracks," said Wendy Yong a senior analyst at oil consultancy FGE, referring to the profit margins for processing a barrel of crude into fuel.

China added more than 600,000 barrels a day (bpd) in refining capacity last year, bringing the nation's total to near 14 million bpd.

The jump in Chinese exports is also coming just after new export-focused refineries have added 800,000 bpd of capacity at Yanbu and Jubail in Saudi Arabia, putting further pressure on Asia's cracking profits.

Still, refining margins in Singapore - the benchmark for Asia - have risen more than 20 percent since December to their highest level in over a year, mainly on the halving in crude values since mid-June.

But the margins are not expected to stand as regional demand growth slows and product supplies rise.

PetroChina, CNOOC and Sinopec spokesmen could not be reached for comment on the quota increase or outlook for exports.

GROWTH IN JET, GASOLINE EXPORTS

China's demand growth is slowing, and with its big jump in processing capacity, that would typically mean a boost in diesel exports. But Chinese refiners have started producing more jet fuel and gasoline at the expense of diesel.

"Demand (for jet fuel and gasoline) continues to be supported by the rapid expansion of China's emerging middle class population," said Benjamin Tang, a senior research analyst with energy advisory Wood Mackenzie.

Domestic demand growth for the two fuels is forecast to be down this year from recent peaks with the general slowing of China's economy, however, resulting in more supply for outbound sales than expected.

More than half of the initial export quotas for 2015 are for jet fuel and a third are for gasoline, according to the sources with knowledge of the matter.

China's average monthly gasoline exports this year could easily surpass last year's monthly exports of 415,000 tonnes, traders said.

Gasoil or diesel exports, on the other hand, are expected to remain steady or fall. China's top diesel exporter Sinopec received a quota to ship just 350,000 tonnes of the fuel in the first half of 2015, down from 2 million tonnes for the same period last year.

China's diesel demand is expected to be flat in 2015, compared with average annual growth rates of 7.1 percent from 2007 to 2011, due to the country's move towards a more consumption-based economy, according to Woodmac's Tang.

China's shift in focus from industrial and infrastructure development towards consumers and services has meant less demand for diesel from the construction sector and for trucks.

Gasoline demand growth is expected to slow this year to an average rate of 7 percent, the least since 2010 and down from about 9 percent last year, according to estimates by FGE and Woodmac.

Jet fuel demand growth is expected to be stable at about 11 percent this year, Woodmac said. – Reuters




Tags: China | Exports | Oil Prices | oversupply | oil products |

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